Every three months, the Manufacturers Alliance for Productivity and Innovation (MAPI) provides a detailed look at the health of the domestic manufacturing sector and reviews the performance of a selected group of its most important subsectors.
This report covers the actual data available through October 2013 and provides our forecasts, which were completed in late November 2013. In this quarterly review, we extend the typical two-year forecast to five years and provide the average annual growth rate for 2016-2018.
Manufacturing industrial production increased at a 1.0% annual rate in the third quarter of 2013 but grew at a 3.8% annual rate in October. The acceleration in manufacturing activity is coming off of essentially no growth in the second quarter but a 4.9% annual rate of growth in the first quarter of 2013. The year began with manufacturing production surging, but the pace was not supported by the performance of the overall economy. The industrial sector, therefore, went through an adjustment period to realign orders and production with a slow-growing domestic economy and the deteriorating export prospects in the second quarter.
Fortunately, the economy accelerated in the third quarter and our major export market overseas improved, so manufacturing production put together three months of continuous growth in August, September and October. The Institute for Supply Management’s Purchasing Managers Index for October and November were very positive, pointing to further acceleration of industrial activity.
The manufacturing outlook for 2014 and 2015 calls for a percentage point acceleration in the growth rate each year. Consumer-driven manufacturing growth, however, will be relatively stable and supported by surprisingly robust employment growth. Households have low debt burdens and their wealth is rising because of higher stock and home prices. Importantly, no major tax increases are foreseen for the near term.
Business-investment-driven manufacturing is responsible for the acceleration in production growth. Businesses are well positioned for making new investments in structures and equipment. Firms have low debt, are profitable and have relatively high utilization rates. What has been lacking is more certainty about the future. With the Eurozone coming out of recession, export activity should pick up and provide a boost to business sentiment. After shutting the federal government down in October and refusing to raise the debt ceiling until the last minute, both political parties were widely criticized by the public. With any hope, politicians learned a lesson and will not flirt with disaster again. More certainty will promote investment activity.
Government austerity will be less of a drag on economic growth than it was in 2013. The Ryan-Murray budget deal should be enacted. Otherwise, the federal government will be run with continuing resolutions.
Manufacturing production grew about 2.1% in 2013, and MAPI forecasts 3.1% growth in 2014 and 4.1% growth in 2015. The intermediate-term outlook is for growth of 3.6% in 2016, 2.9% in 2017 and 3.1% in 2018.
High-tech production (computers and electronic products) increased 4.4% in 2013. We predict growth to be 6.8% in 2014 and 8.4% in 2015. The intermediate-term outlook is for growth of 8.3% in 2016, 8.6% in 2017 and 9.8% in 2018. Non-high-tech or traditional manufacturing, which accounts for the vast bulk of value-added in the sector, grew about 2.0% in 2013. The forecast calls for a 3.0% increase in 2014 and a 4.0% gain in 2015. The outlook for 2016 through 2018 is for growth rates of 3.5, 2.8 and 2.8%, respectively.
Log in to the MTI members only area on www.heattreat.net and click on Manufacturing Sector Report in the featured resources box to view the full 18-page report.